Union Cabinet likely to announce proposal for National Asset Reconstruction Company

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The government has approved a proposal for the resolution of bad loans, that states National Asset Reconstruction Company (NARCL) will issue government guarantee to security receipts, according to a report in Business Standard. The guarantee by the government is expected to be around Rs 31,000 crore according to Indian Banks Association (IBA). IBA is also assigned the task of setting up a bad bank.

Around 85% of government-guaranteed security receipts and up to 15% of the agreed value for the loans in cash will be paid by NARCL or the proposed bank. In case of loss against the threshold value, the government guarantee will be invoked.

Earlier, an application was submitted by IBA for a licence to set up a Rs 6,000-crore NARCL, to the Reserve Bank of India (RBI). The sources quoted by the report have said that cabinet’s approval will make a way for the bad bank which was announced by Sitharaman during the budget, this year.

Sitharaman had stated in the budget speech that Asset Reconstruction Company Limited and Asset Management Company would be set up to consolidate and take over the existing stressed debt. The assets will be managed and transferred to alternate investment funds and other potential investors for realization of value.

For a speedy and efficient non-performing assets’ resolution, IBA has drafted a proposal for the creation of the bad bank, last year. The government approved the proposal for an asset reconstruction company and asset management company model.